By the mid-fifteenth century, as the sultanate courted foreign Muslim merchants' business, Islam began to make inroads into Bruneian society. This process was accelerated by the decamping to Brunei of wealthy Muslim merchant families after the fall of Melaka to the Portuguese in 1511. In the first half of the sixteenth century, Brunei was Borneo's foremost kingdom, its influence stretching along the island's northern and western coasts, and even as far as territory belonging to the modern-day Philippines. Such was the extent of Bruneian authority that Western visitors found the sultanate and the island interchangeable: the word "Borneo" is thought to be no more than a European corruption of Brunei. But by the close of the sixteenth century, things were beginning to turn sour. Trouble with Catholic Spain , now sniffing around the South China and Sulu seas with a view to colonization, led to a sea battle off the coast at Muara in 1578; the battle was won by Spain, whose forces took Brunei Town, only to be chased out days later by a cholera epidemic. The threat of piracy caused more problems, scaring off passing trade. Worse still, at home the sultans began to lose control of the noblemen, as factional struggles ruptured the court.

Western entrepreneurs arrived in this self-destructive climate, keen to take advantage of gaps in the trade market left by Brunei's decline. One such fortune-seeker was James Brooke , whose arrival off the coast of Kuching in August 1839 was to change the face of Borneo for ever. For helping the sultan to quell a Dyak uprising, Brooke demanded and was given the governorship of Sarawak; Brunei's contraction had begun. Over subsequent decades, the state was to shrink steadily, as Brooke and his successors used the suppression of piracy as the excuse they needed to siphon off more and more territory into the familial fiefdom. This trend culminated in the cession of the Limbang region in 1890 - a move which literally split Brunei in two.

Elsewhere, more Bruneian land was being lost to other powers. In January 1846, a court faction unsympathetic to foreign land-grabbing, seized power in Brunei and the chief minister was murdered. British gunboats quelled the coup and Pulau Labuan was ceded to the British crown. A treaty signed the following year, forbidding the sultanate from ceding any of its territories without the British Crown's consent, underlined the decline of Brunei's power . Shortly afterwards, in 1865, American consul Charles Lee Moses negotiated a treaty granting a ten-year lease to the American Trading Company of the portion of northeast Borneo that was later to become Sabah. By 1888, the British had declared Brunei a protected state, which meant the responsibility for its foreign affairs lay with London. The turn of the twentieth century was marked by the discovery of oil : given what little remained of Bruneian territory, it could hardly have been altruism that spurred the British to set up a Residency here in 1906. By 1938, oil exports, engineered by the British Malayan Petroleum Company, had topped M$5 million.

The Japanese invasion of December 1941 temporarily halted Brunei's path to recovery. While Sabah, Sarawak and Pulau Labuan became Crown Colonies in the early postwar years, Brunei remained a British protectorate and retained its British Resident. Only in 1959 was the Residency finally withdrawn and a new constitution established, with provisions for a democratically elected legislative council. At the same time, Sultan Omar Ali Saifuddien (the present sultan's father) was careful to retain British involvement in matters of defence and foreign affairs - a move whose sagacity was made apparent when, in 1962, an armed coup was crushed by British Army Gurkhas. The coup was led by Sheik Azahari's pro-democratic Brunei People's Party (PRB) in response to Sultan Omar's refusal to convene the first sitting of the legislative council. Despite showing interest in joining the planned Malaysian Federation in 1963, Brunei suffered a last-minute attack of cold feet, choosing to opt out rather than risk losing its new-found oil wealth and compromising the pre-eminence of its monarchy. Brunei remained a British Protectorate until January 1, 1984, when it attained full independence . Ever since the 1962 coup, Brunei has been ruled by the decree of the sultan, who fulfils the dual roles of (non-elected) prime minister and defence minister, while the posts of minister of foreign affairs and minister of finance are held by his brothers. Political parties were countenanced for three years in the mid-1980s, but outlawed again in 1988. The sultan is quoted in Lord Chalfont's biography, By God's Will, as saying, "When I see some genuine interest among the citizenry, we may move towards elections." The government's emergency powers have also remained in place since 1962, which include provisions for the detention, without trial, of citizens.

Meanwhile, oil reserves have fulfilled all expectations, particularly in the 1970s, the decade that saw oil prices shoot through the ceiling, when money really began to roll in. Oil has made Bruneians rich, none more so than Brunei's twenty-ninth sultan, Hassanal Bolkiah (his full title is 31 words long). The Guinness Book of Records and Fortune Magazine have both credited the present sultan as the richest man in the world, with assets estimated to be as high as US$37 billion. The sultan himself disputes such claims, asserting that he doesn't have unlimited access to state funds. Nevertheless, he has managed to acquire hotels in Singapore, London and Beverly Hills; a magnificent residence, the US$350-million Istana Nurul Iman; a collection of three hundred cars and a private fleet of aircraft; and over two hundred fine polo horses, kept at his personal country club.

Although Brunei can only grow richer with its oil reserves and massive global investements, in recent years the Sultan has decided that the economy should diversify into hi-tech industries, the service sector and ecotourism - evidence of a less isolationist and self-contained outlook. Bruneians themselves want to feel part of a larger world - many pop over to Miri in Sarawak on the weekends, where they see the benefits of a tourist infrastructure, such as cheaper goods, and where they encounter less restrictive traditions.

Ecotourism is viewed as appropriate for a religiously conformist state like Brunei. It certainly plays to the State's strengths - with logging almost nonexistent, southern parts of the country consist mostly of pristine rainforest and are a delight to travel in, now that a basic infrastructure has been put in place.